VOL SURFACE

Koala · April 28th, 2005, 2:31 am

if i hv the ATM vol, RR and Strangle for most common dates ... for example... i know the vol for 1w, 2w 1mth, 2mth and 1year for EURUSD.. and also the corresponding RR and Strangle... how can i create the vol surface... actually, i am going to price some daily fixing product...

domilar04 · April 28th, 2005, 2:53 am

if RR is followed by "P", 25D call = atm+bf-rr/2 25D put=atm+bf+rr/2

Koala · April 28th, 2005, 1:28 pm

then how about the date in between these normal dates?...for the ATM n also for those OTM strike?

domilar04 · April 29th, 2005, 12:55 am

"25D" means 25 delta

Koala · April 30th, 2005, 1:49 am

and can i derive the forward vol from that??

Optron · May 1st, 2005, 11:54 am

For dates in between and for strikes (read Delta) in between, you can interpolate the vol smile curve and the vol term structure respectively - linear or some other technique.Yes, you can derive Forward vols from the vol term structure (like forward rates from term structure of interest rates).

Koala · May 2nd, 2005, 7:47 am

so.. does any material talk about how to derive the forward vol?..

Optron · May 3rd, 2005, 1:46 pm

Forward Vol FV(t1, t2) = SQRT ( [ Sigma2 ^ 2 * t2 - Sigma1 ^ 2 * t1 ] / (t2 - t1) )0 < t1 < t2Sigma2 = vol corresponding to maturity t = t2